Met with an agent regarding a term life policy that I want to purchase, but he is trying to sell me a whole life policy. The portfolio is mostly private, non-marketable corporate bonds, he's saying that I should replace the bond allocation in my personal accounts with a whole life policy. He claims that by replacing my fixed income allocation with the whole life police I would get a higher return with no interest rate risk because the bonds they invest in cant be sold on the secondary market.

I'm sure this has been discussed before but would love to hear some thoughts on the subject.

I would say, "I don't understand anything but term insurance, so that's all I'm going to buy. I might be passing up a great opportunity, but I'm not going to buy anything else but term. Is that something you are interested in quoting to me?"

I have had great success in simply playing stupid and insisting I don't buy anything I don't completely understand.

I would venture to say that permanent life insurance is suitable for less than 2% of people, for some reason I bet this guy recommends it 100% of the time. Ged is spot on, use the search tool on the website to look up similar situations.

“Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have—or don’t have—in their portfolio.” -Taleb

He's making claims (e.g. the returns on products the insurance can buy) that are not fully substantiated (perhaps rooted in a small kernel of truth, but exaggerated to the point of no longer being useful information) to induce doubt into your thought process so that you will be more susceptible to the marketing pitch he is giving you.

Plus, a life insurance policy is not a retirement plan. The "loans" you can take out on whole life insurance are paltry compared to their value upon your death. Don't co-mingle your investment strategies. Retirement plans and taxable accounts are for investing for your future. Life insurance is there to provide for your loved ones after you die.

Just repeat "I want term, not whole life" and if that does not work, find someone else.

You will notice that no independent sites or organizations or magazines recommend it as an investment.

The commission on a typical whole life policy is typically 100% of the first year or two of premium with ongoing comissions at a much smaller percentage for the first 10 years. If you look at the data from LIMRA, society of actuaries, or from independent fee online life insurance agents like glenn daily you will see that like less than 20% of whole life polices are kept in force until death. This is bc people figure it out after they have purchased the product which is too late.

Im not even sure you want metlife. You should look at a place like term4sale.com and see what rates you would qualify for. Then have an independent agent find you the best offer. It should be very similar to what you find at term4sale. If not then there better be a good reason.

He also cant prove that whole life will outperform your fixed. I would actually doubt it. Keep in mind that typically they invest in bonds/treasuries, have tremendous costs, and pass the difference on to you. Does that sound like a winning formula for an investment? Agents like to pretend that these polices are currently performing at a higher percentage then what is currently happening. If you look at the data on dividends, you will notice all companies have decreasing dividends over the last 2 decades. In a low interest rate environment, its hard for them to make much safely. The guarantee is only as good as the ability of the company to pay. If they go under then you could be left with nothing. There is a state guaranty assoc but this isnt backed by state or fed dollars. Its an agreement where other companies try to rescue a failed insurance company and take over the polices up to the limits which are typically 100k of cash value and 300k of death benefit.

The interaction was not as some of you are making it out to be, I didn't mean to imply that he would not sell me the term policy I want, only that he presented me with many reasons why whole life would be better for me than term. The interactions have always been pleasant and he'll sell me whatever I want, that said I know he's trying to sell me something and understand the implications of that...this is why I'm here asking questions.

dhodson wrote:then what is your real question. Its a very bad investment. what don't you understand about that?

My question is why is it a very bad investment? Why is his claim untrue? His claim being that their portfolio of private, non-marketable corporate bonds is a better fixed income investment than the bond funds I currently own.

I'm new to this and I'm asking questions so I can learn. What don't you understand about that?

dhodson wrote:then what is your real question. Its a very bad investment. what don't you understand about that?

My question is why is it a very bad investment? Why is his claim untrue? His claim being that their portfolio of private, non-marketable corporate bonds is a better fixed income investment than the bond funds I currently own.

I'm new to this and I'm asking questions so I can learn. What don't you understand about that?

Ask your insurance agent/broker to put IN WRITING whatever his claims and assertions are for the whole life policy he is trying to sell you.Since he is presenting this to you as an investment ask him to include information about expenses, returns and commissions.Also, if this whole life policy is backed by securities, has he presented you with a prospectus?

If he won't give you simplified answers in writing, that match his verbiage, then don't go near the product.If he does provide written answers then the reasons for avoiding this product will reveal themselves.And remember, unlike most investments:1. you need to continue paying/contributing for this "investment" every year2. should you stop paying for this policy and let it lapse (as most people do) then the value of your "investment" diminishes substantially or evaporates entirely

tomd37 wrote:John, If you don't fully understand whatever you are buying and why you are buying it (or being sold it), you should not be buying it....regardless.

Tom, that's why I'm here asking these questions, so I can better understand before I make any decisions. I never intended to buy a whole life policy, but I was presented with the option today and simply want to make sure I understand why the claims being made are untrue before I say no.

John3754 wrote:The interaction was not as some of you are making it out to be, I didn't mean to imply that he would not sell me the term policy I want, only that he presented me with many reasons why whole life would be better for me than term. The interactions have always been pleasant and he'll sell me whatever I want.

Then you need to change the thread title. "Pushing " doesn't sound like what you're describing now.

You have to understand that Whole Life Insurance is like a very strong religious belief to insurance agents. It is pretty well drilled into their skull to push Whole Life and to discourage clients from buying term.

The commission on a whole life policy is about 100% of your first years premium. They get some sort of residuals on these as well. Of course they are going to recommend these.

The reality is that you can buy investments on the market just like the insurance company can. A whole life policy is basically a bond portfolio minus gobs and gobs of commissions and fees. My suspicion is that if you bought term and invested the difference in I-Bonds that you would still come out ahead. I-Bonds at Treasury Direct give you the same tax deferral as a policy can. Even buying the EE bonds and holding them 20 years, I bet you would still come out ahead.

Bonds yield maybe 3% now. Can an insurance wave a wand and make the returns higher than that? Particularly when the commission and fees are so very high. My suspicion is that your return would be 1% or less over time. I would pass.

dhodson wrote:then what is your real question. Its a very bad investment. what don't you understand about that?

My question is why is it a very bad investment? Why is his claim untrue? His claim being that their portfolio of private, non-marketable corporate bonds is a better fixed income investment than the bond funds I currently own.

I'm new to this and I'm asking questions so I can learn. What don't you understand about that?

As I said previously, there may be a kernel of truth to his claims, but that kernel of truth has been exaggerated beyond its logical boundaries. For example, they may purchase bonds that are not available on the open market. However, there is a fault in his implications that such bonds make better returns. Being limited or private bonds has no bearing on the dividends of those bonds, but it could negatively impact the ability to sell those bonds when one needs to do so (since one has only a limited group of buyers).

Another kernel of truth might be that in the realm of fixed investments, there exists a bond fund whose performance is worse than the bond mix in the policy. However, that does not logically mean it performs better than all fixed investments. Further, your current fixed income investments are for you (money for you to spend when you retire). Life insurance is for your dependents (money for them to have after you die). It's not really an apples to apples comparison, more like apples to banana bread.

why don't you figure the difference in costs between the same amount of life insurance between whole life and term, buy the term and invest the difference in low cost index funds. You'll make out better in the end (since there are costs involved in insurance that you won't have with investing directly in funds through vanguard for instance). And the beauty of this is that you'd have the same amount of life insurance coverage that you'd have if you'd bought whole life.

So get the amount of life insurance you need, but buy it term and invest the additional amount you would have spent if you'd bought whole life.

In the end, get the coverage you need and enrich yourself through your investments (but don't feel obligated to enrich your insurance salesman).

"Invest we must." -- Jack Bogle |
“The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

John3754 wrote:The interaction was not as some of you are making it out to be, I didn't mean to imply that he would not sell me the term policy I want, only that he presented me with many reasons why whole life would be better for me than term. The interactions have always been pleasant and he'll sell me whatever I want.

Then you need to change the thread title. "Pushing " doesn't sound like what you're describing now.

Call it what you want...pushing, strongly recommending, advocating for, endorsing, suggesting, repeatedly mentioning, urging...use whatever synonym you'd like, the fact is I went into a meeting wanting to buy term, I was offered the term I wanted but was told repeatedly why whole life would be a better option.

nedsaid wrote:You have to understand that Whole Life Insurance is like a very strong religious belief to insurance agents. It is pretty well drilled into their skull to push Whole Life and to discourage clients from buying term...

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it." - Upton Sinclair

You say you want term life in your original post but that instead your agent is try to sell you a whole life policy. And your title says "they're pushing whole life". That about sums it up for me. If anybody is pushy with anything their selling that is an immediate turnoff and a good reason to turn around and leave. Or laugh.

John3754 wrote:Met with an agent regarding a term life policy that I want to purchase, but he is trying to sell me a whole life policy. The portfolio is mostly private, non-marketable corporate bonds, he's saying that I should replace the bond allocation in my personal accounts with a whole life policy. He claims that by replacing my fixed income allocation with the whole life police I would get a higher return with no interest rate risk because the bonds they invest in cant be sold on the secondary market.

I'm sure this has been discussed before but would love to hear some thoughts on the subject.

Thanks.

Tell him to get you the term policy you want or you will find someone who wants the commission.

tomd37 wrote: John, If you don't fully understand whatever you are buying and why you are buying it (or being sold it), you should not be buying it....regardless.

Tom, that's why I'm here asking these questions, so I can better understand before I make any decisions. I never intended to buy a whole life policy, but I was presented with the option today and simply want to make sure I understand why the claims being made are untrue before I say no.

No, you have it backwards. He needs to make you fully understand and accept that his wild claims are true before you say yes. If he can't explain it so you and your consultants (us) can validate what he says, you shouldn't think of buying.

The burden of proof is on this agent not you. If he can't meet it then no deal. We are all waiting to see what he offers as proof. JW

Let's say you make the perfect argument and convince him he shouldn't be selling whole life. That really gets you nothing. You still need the term life. So, simply move on to the low cost provider of term life that you don't need to convince them to sell you their product.

There's no burden of proof at all. Arguing with the agent is playing his game. They've got training, they've got scripted answers, they know just what to say to convince people. They've had decades of practice in convincing people to buy whole life. Each time you meet with him, he will find something fresh to say that is convincing and plausible and will take you an hour of research to refute.

The only way out is not to argue. Simply say "I am going to buy term. That is what I have decided." If he says "If you'll just give me five minutes, I can show you why whole life is better, won't you even give me five minutes," say "No, because I have made my decision."

You need to make it clear that his choice is not whether he is going to sell you whole life or term. His choice is whether he is going to make a sale or not make a sale.

Your position is, "I am shopping for term insurance. I am going to buy term insurance. I have my checkbook ready. If you would like to make a sale, show me your rates and help me understand my options." Ignore all distractions, and just keep coming back to the fact that you have decided to buy term insurance.

"Well, I'll sell it to you if you want, but trust me, thirty years in the business, you're making a mistake."

"Perhaps I am making a mistake, but it is what I have decided. Would you like to sell me some term insurance?"

Your answer to everything he says is "Maybe, but nevertheless I have decided to buy term insurance."

If he doesn't give up, then get out.

Do not try to convince him that term insurance is better. He is the professional convincer, you are not.

P.S. It is much easier to write a post like this, and so hard to do it when you are talking to a skilled salesperson. It's funny how you think up the most killing rebuttals in your imagination, but the conversation just doesn't go that way...

nisiprius wrote:P.S. It is much easier to write a post like this, and so hard to do it when you are talking to a skilled salesperson. It's funny how you think up the most killing rebuttals in your imagination, but the conversation just doesn't go that way...

That's why it's sometimes better to just give yourself a simple script to stick to (e.g. "No thanks, I want term insurance"), instead of trying to rebut the points the salesman is making. Avoidance is a good negotiation strategy when it prevents you from getting confused or doubtful.

The insurance rep will never agree that whole life is a bad investment. Don't waste your time getting into a discussion with him/her. Simply say, "I am going to buy term insurance from you or another carrier. Give me a quote, and I'll get back to you unless I get a better price elsewhere."

With a little common sense one can figure out that buying so-called investments from an insurance company is a bad deal. How on earth are they going to pay the rep's sizable commission, pay for the overhead of a massive bureaucracy, payoff beneficiaries, make a profit for their shareholders and outperform a simple, no-load, low-cost index fund? Anyone who believes that probably believes in Santa Claus, the Easter Bunny and the Tooth Fairy.

he is trying to sell me a whole life policy. The portfolio is mostly private, non-marketable corporate bonds, he's saying that I should replace the bond allocation in my personal accounts with a whole life policy. He claims that by replacing my fixed income allocation with the whole life police I would get a higher return with no interest rate risk because the bonds they invest in cant be sold on the secondary market.

I think I would want to know a little more about those "mostly private, non-marketable corporate bonds that can't be sold on the secondary market."

Then you said:

I'm sure this has been discussed before but would love to hear some thoughts on the subject.

Well, you got plenty of responses about why this is not a good idea; but you seem unconvinced.

One thing you didn't say was why you are considering this life insurance in the first place. Do you have growing family? Do you have employer supplied life insurance as part of your benefits package that isn't sufficient? Is it just something you feel like you need? Insurance companies and their representatives have made a very nice living over the years blurring the distinction between insurance coverage and investments. The two should be kept separate.

The following on life insurance is taken from the Bogleheads' Wiki:

.......................................The most common forms are term insurance that is in force for only a period of time and the more expensive whole life insurance that combines the features of life insurance with those of a sub-par investment vehicle. Generally speaking, you are better off purchasing term insurance and using a good investment vehicle than purchasing whole life insurance, ........................................

Read all you can about the advantages / disadvantages of term vs whole life, study the Wiki, read the Bogleheads books, ask people whose opinion you value; but don't do anything until you feel comfortable with your decision.

John3754 wrote:My question is why is it a very bad investment? Why is his claim untrue? His claim being that their portfolio of private, non-marketable corporate bonds is a better fixed income investment than the bond funds I currently own.

His claim is untrue... Insurance companies don't have some exotic investments that they can use and normal people can't. Basically, they invest in the same bonds you can invest in... but they will take out 2%-3% in fees.

Salesman will talk about how whole life policies in the past paid 5%-6% and that sounds pretty good in today's rate environment, but bonds over the last 30 years paid out about 8% a year.

If bonds return 4% going forward, whole life is only going to return 1%-2%.

John3754 wrote:Met with an agent regarding a term life policy that I want to purchase, but he is trying to sell me a whole life policy. The portfolio is mostly private, non-marketable corporate bonds, he's saying that I should replace the bond allocation in my personal accounts with a whole life policy. He claims that by replacing my fixed income allocation with the whole life police I would get a higher return with no interest rate risk because the bonds they invest in cant be sold on the secondary market..

What does he know about your bond allocation? Tell us about it. What is it invested in? What is the return?

As far as the whole life returns, what return rate is guaranteed? Show us some numbers.

Is there a break even period? In general, if you cancel a whole life after 1 year, you lose a ton of money. If you cancel it in 5 or 10 years, you'd still keep loosing. After that, things might even out, but it takes a long time to dig out of the hole, if ever.

John3754 wrote:Met with an agent regarding a term life policy that I want to purchase, but he is trying to sell me a whole life policy. The portfolio is mostly private, non-marketable corporate bonds, he's saying that I should replace the bond allocation in my personal accounts with a whole life policy. He claims that by replacing my fixed income allocation with the whole life police I would get a higher return with no interest rate risk because the bonds they invest in cant be sold on the secondary market.

I'm sure this has been discussed before but would love to hear some thoughts on the subject.

Thanks.

This is the same argument people use to say that bonds are safer than bond funds because you can hold them to maturity. There is still interest rate risk in all cases: bonds, bond funds, and non marketable bonds (unless they are floating rate). The failure to realize a loss does not make it vanish. the wiki discusses this issue and Vanguard has a paper on it as well.

John3754 wrote:Met with an agent regarding a term life policy that I want to purchase, but he is trying to sell me a whole life policy. The portfolio is mostly private, non-marketable corporate bonds, he's saying that I should replace the bond allocation in my personal accounts with a whole life policy. He claims that by replacing my fixed income allocation with the whole life police I would get a higher return with no interest rate risk because the bonds they invest in cant be sold on the secondary market.

I'm sure this has been discussed before but would love to hear some thoughts on the subject.

Thanks.

I didn't read the other replies, but I would find another agent. If you want life insurance Term is the only answer. If you are trying to use insurance as an investment the only one who will benefit is the agent.

nisiprius wrote: There's no burden of proof at all. Arguing with the agent is playing his game. They've got training, they've got scripted answers, they know just what to say to convince people. They've had decades of practice in convincing people to buy whole life. Each time you meet with him, he will find something fresh to say that is convincing and plausible and will take you an hour of research to refute.

No argument. When I said burden of proof I meant real proof not some BS sales pitch. The agent can't supply anything like proof so that should be the end of it.

Just walking away would be the best choice but OP seemed to feel he needed to somehow prove the agent has it wrong about whole life before he declines. I tried to point out that's backwards. JW

Last edited by JW-Retired on Mon Jul 15, 2013 7:46 pm, edited 1 time in total.

prudent wrote:I would say, "I don't understand anything but term insurance, so that's all I'm going to buy. I might be passing up a great opportunity, but I'm not going to buy anything else but term. Is that something you are interested in quoting to me?"

I have had great success in simply playing stupid and insisting I don't buy anything I don't completely understand.

I usually try to avoid using "I don't understand," with a salesman, when referring to the product(s) they're selling, or anything I can preemptively perceive as a way of giving them another opening.

"You don't understand it? Well let me explain to you why it's so darn wonderful!<long explanation>See that? How could you possibly refuse such an amazing product?"

Or follow that up with a less-than-subtle hint that you'll simply leave if they don't sell you what you want to buy.

Whole life is horrible. My wife and I are finding that out now. Someone sold her parents a policy that was not appropriate for the goals they had in mind. Because it is in her name, we get to pay taxes on money taken out as a loan years ago.

Whole life is almost never appropriate.

My advice is not to tell the person you want term instead of whole. My advice is to tell them that you went with another agent who would sell you term life insurance.

I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

In general, I wouldn't go with whole life. It tends to be expensive. And I don't like your description of the investments in it. The most compromise I'd make is a variable life policy.

For most people's needs, term works best. But you have to realize that buying term also puts responsibility on you to build a savings nest egg for later in life. In effect, you can make your own whole life policy by investing smart in tax deferred accounts.

Eventually, term will become too expensive to buy, so you need to prepare for that.

also buying permanent insurance doesn't put less responsibility for the nest egg. In fact it puts more responsibility on you since the costs are higher for the same amount of money. Most people lapse/surrender their polices, so buying insurance doesn't solve any behavioral issues.